If you’re thinking of starting up your own business you’ll probably need to register with Companies House. This means that you need to think about the type of company you want your business to be. This will have implications for paying tax and National Insurance, what type of records and accounts you will need to keep and how you make management decisions about the business, among other things.
You will have the options of registering as a sole trader, as a partnership, as a private company or as a public limited company. This article aims to give you some information on Sole Traders and Partnerships so that you can get a good idea of which is best for you and your business idea.
This is the simplest form of business you can run; there are no registration fees and you get to keep all the profits. You do need to keep records and accounts, but they will be relatively simple and chances are that you will be able to do all of this yourself. You will also make all of the business decisions yourself (which can seem a really attractive option to many people). You’ll be personally liable for any debts incurred by your business, however, meaning that this is probably not the best option if you need quite a bit of investment. As for tax and National Insurance, your profits will be taxed as income and you will need to register for self assessment and complete tax returns on an annual basis. You’ll have to pay a fixed rate of National Insurance (Class2) whatever your profits and you’ll also have to pay Class 4 National Insurance contributions on your profits.
There are three types of partnership – limited liability partnership (LLP), limited partnerships and what’s termed “ordinary” partnerships. All three types have several things in common, the first being that there need to be two or more persons sharing responsibility for the business. The profits and gains of the business will be shared amongst the partners, all of whom will be personally responsible for paying the tax on their share of the profits and for paying their National Insurance contributions. The partnership will need to keep records to show business income and expenses and decisions will need to be made at the outset as to who is responsible for what. It’s probably best to have some sort of written agreement drawn up between all the partners right at the start so that everybody involved has a clear understanding of their responsibilities and their rights.
While being a Sole Trader can seem the most attractive option here, you need to be aware that your assets may be at risk if you should encounter debts. The limited liability option of a partnership could be a great way of protecting your assets (such as your home) if things don’t go as planned and your business experiences problems. Both sole traders and partnerships have their advantages and disadvantages and it’s important to research fully what’s involved in both of these options so that you can make sure that you are making a wise decision when starting up on your own.
Guest post by Debbie who frequently writes about new businesses and offers start-up advice for new companies. She also regularly writes about foreign exchange and currency exchange.